Managing Your Forward Inflation Forecast
On today’s show we’re talking about rent growth. There are rising rents in many submarkets. For those who own their own home, they’re probably glad that their housing costs are fixed.
We have seen near record setting price increases for single family homes in many major markets across the US. The fact is, you can’t have price increases in the housing market and then experience no effect in the rental market. The two markets are not strongly linked together, but they are not completely isolated from each other either. If the cost of owning a new single family home goes up, you will also eventually see those costs reflected in the rents.
This dynamic environment has made it difficult for apartment investors and developers to forecast their business plans. If rents increased 20% in 2021, what should they forecast in 2022? Historically, widely accepted inflation metrics used a 2% escalation for rents over the past decade. What should you put in your numbers for 2022? Would you use the 6.1% CPI that we have experienced so far in 2021? Should you use zero? Should you use 2%? You can make an argument for any of those choices. But they will all be incorrect.
Host: Victor Menasce